Modest 0.7% economic first-quarter growth in 2017 persuaded members of the Federal Open Market Committee at their meeting in early May to keep the federal funds rate target at 0.75% to 1%, showed minutes released Wednesday.
FOMC members agreed to wait for more evidence that the slower pace of economic activity was transitory before considering another rate hike, which Fed watchers are expecting to happen at the FOMC meeting June 13-14.
“Participants generally reiterated their support for a continued gradual approach to raising the federal funds rate,” the minutes said. “Some participants noted that core (personal consumption expenditures) price inflation had been running below the committee's objective for overall inflation for the past eight years and that it was important to return inflation to 2%, or that the public's longer-term inflation expectations may have fallen somewhat, and that a gradual approach to tightening could help return expectations and inflation to 2%.
Several participants emphasized that higher requirements for capital and liquidity contributed to increased resilience in the financial system since the financial crisis. “However, they expressed concerns that a possible easing of regulatory standards could increase risks to financial stability,” the minutes showed. Another concern was elevated values in some sectors of the commercial real estate market.
Still, the minutes validate market expectations of another rate hike in June, Natixis economist Thomas Julien said in an emailed statement. “We expect most members to remain cautious regarding growth and inflation prospects,” and to opt for a gradual normalization of the Fed's balance sheet by using a rolling cap on reinvestments that increases every three months Mr. Julien said.